Former Enron executive pays SEC $31.5 million to settle case

We all know the tragic story of the collapsed Enron Corp. that not only hurt lots of folks, but also caused the federal government to finally start looking at what some other corporations were doing. A former top executive of Enron is paying $31.5 million to settle charges in a civil action alleging that he used inside information to illegally profit from sales of thousands of shares of company stock in 2001. According to the Securities and Exchange Commission, the settlement with Lou L. Pai — who was chairman and chief executive of the fallen company’s retail energy division Enron Energy Services — is one of the largest ever with an individual for illegal insider trading.

The settlement includes a $1.5 million civil fine and $30 million in restitution plus interest. The SEC gave Pai credit for $6 million due him under his insurance policy as a company officer that he previously forfeited as a payment to Enron shareholders in a class-action lawsuit. He agreed to pay the remaining $25.5 million into a fund administered by the SEC for injured Enron shareholders.

Pai sold nearly $300 million in Enron stock before he quit the Houston-based company in mid-2001. The massive accounting fraud at Enron, once the nation’s seventh-largest company, and its collapse into bankruptcy in December 2001 was a classic example of corporate corruption. In its suit, the SEC said that between May 18th and June 7, 2001, Pai sold 338,897 shares of Enron stock and exercised Enron stock options that put another 572,818 shares on the open market. Pai made the sales after receiving confidential information from Enron Energy Services management regarding financial and operating problems at the division, according to the SEC. Pai avoided millions in losses from the stock sales when Enron’s stock price plummeted in the fall of 2001. Pai’s shares averaged $53.78 a share at the time of his sales and closed at 40 cents on December 3, 2001 — the day after Enron filed for bankruptcy protection.